Report funded by JPS backs monopoly, coal and LNG conversion

Workmen contracted to Jamaica Public Service (JPS) are seen performing work on a utility pole along Dunrobin Road, in Kingston on Sunday, June 12. A new JPS-funded report backs its monopoly. - Rudolph Brown/Photographer

McPherse Thompson, Assistant Editor - Business

An international team of consultants has recommended that Jamaica pursue, as a top priority, changing the main fuel for generating electricity to liquefied natural gas (LNG) or coal, saying it would result in a one-third reduction in the cost of power supplies to customers.

At the same time, the Washington, DC-based advisers, Castalia, have suggested in a report obtained by the Financial Gleaner that Government should not break the monopoly over power distribution held by Jamaica Public Service Company (JPS).

The break-up would more likely result in an increase in rates for residential and small commercial customers, and no reduction in the costs to large industrial users, Castalia said.

The June 2011 report, Options to bring down the cost of electricity in Jamaica, was prepared for and funded by JPS. It had no immediate comment on the document.

The power utility commissioned the study in response to increasing complaints about the high prices for electricity in Jamaica and its impact on household finances and business competitiveness.

JPS engaged Castalia to formulate a range of possible reforms, from improving current electricity system operations to restructuring the electricity sector, as suggested by various stakeholders.

Castalia's report said the switch to LNG or coal to fuel generation plants would cut electricity rates by US$0.10 from the current average tariff of between US$0.32 and US$0.39 per kilowatt hour.

This could be achieved, the report said, with the commissioning of a 360-megawatt natural gas combined cycle plant, conversion of the combined cycle plant at Bogue to LNG, and assuming that the JPS's oil-fired steam units were no longer used for regular dispatch.

The Bogue plant in Montego Bay is already configured for LNG conversion.

Second, the Castalia advisers suggest using more renewable energy, such as bagasse cogeneration, wind power and landfill gas-to-energy, all of which are cheaper than the oil-based generation plants currently on the system.

Castalia has otherwise recommended as secondary priorities the pursuit of a reduction in technical and non-technical system losses, as well as increasing the use of energy-efficient technologies among end-users that would enable customers to save electricity at a cost lower than the tariffs which currently obtains.

"We find that residential customers could achieve net savings equivalent to 16 per cent of their electricity bills, given current electricity tariffs," said the report. "Commercial customers could achieve net savings equivalent to 14 per cent of their current electricity bills, and large commercial and industrial customers could achieve net savings equivalent to eight per cent of their current electricity bills."

Jamaicans have been calling for the disbanding of the JPS monopoly as electricity prices climb.

Castalia says, however, that the separation of generation, transmission and distribution of electricity, as well as introducing competition in generation and retailing should not be pursued.

"The benefits from implementing such reform can only be achieved in markets that are large enough to accommodate sufficient generators to compete with each other," said the report.

A system the size of Jamaica's has little scope for attracting more than a few generators, would likely result in an oligopoly, with prices much higher than under competition, Castalia suggests.

"In fact, we find that restructuring Jamaica's electricity sector as a competitive market would lead to higher costs than under the current regulatory and market structure", the report said.

"We estimate that costs could increase by US$0.11 per kWh, compared with current costs, under a market structure similar to New Zealand's. Implementing this reform would also entail a risk of increasing system losses, and prevent investment in new capacity."

It cited markets in New Zealand, the Philippines, and the Dominican Republic.

The consultants have also argued against competition in generation and supply, saying that while commercial and industrial customers would be able to buy electricity from suppliers other than the JPS, it was unlikely to lead to large or widespread reduction in costs for large users.

"Perhaps more importantly, any reduction in JPS' energy sales would be to the detriment of smaller residential and commercial customers," Castalia said.

Castalia said electricity tariffs were determined in a way that allowed the JPS to recover the cost of operating the electricity network - given a determined level of performance and efficiency - from all end-users.

"If several large customers opted out of buying power from the JPS system, the company would still have to maintain the same transmission and distribution system and almost the same generating capacity and, therefore, any loss in its revenue would eventually result in a rise in tariffs to all of the remaining customers," it said.

The advisers have also suggested that a proposed independent entity to handle the dispatch of various generators onto the system should not be implemented.

The entity would be responsible for dispatching the power produced by the JPS and independent power producers on to the JPS-owned transmission and distribution system for delivery to customers.

"It is crucial to ensure that electricity in Jamaica is supplied in a way that minimises costs," said Castalia.

"However, creating an independent system operator would entail transaction costs and increased overheads that would need to be borne by customers."

The report argues that dispatch could be achieved at lower costs by making small additions to the Office of Utilities Regulation's current monitoring practices.